Concept of defensive assets
Defensive assets mean assets for which the effects of inflation and currency devaluation are minimized. This term refers, in particular, to real assets such as real estate and precious metals such as gold. In addition, securities such as sovereign debt obligations that are issued and guaranteed by the Sovereign State may also be considered as safe haven assets. However, with the financial crisis that broke out in 2007-08, not all sovereign debt can be considered secure, with the group of secured debts being circumscribed to a group of countries that are rated by the rating agencies.
What are the defensive assets used for?
At the heart of the issue of defensive assets is coverage of the risk. So investors do not have a bit of profitability to defend themselves against the loss of value of the asset in which they invested. Thus, for example, the goal of integrating gold into portfolios is to eliminate risk. Hedging consists of the ability of an asset to hedge the losses of other assets over a given period of time. In addition, an asset refuge is an asset that also covers the losses of other assets at times of uncertainty such as periods of crisis. It is considered as a safe “space” that does not lose value in the event of a crash, that is, a sharp and generalized fall in financial assets traded on the stock exchange, offering favourable opportunities and conditions and characterized by a negative correlation with other assets at times of turbulence. It is therefore not surprising that investors resort to an active refuge in situations of severe market shocks for short periods of time.
